Rule change pushes Premier League into Ksh40b loss

The Premier League is set to announce a record annual loss of Ksh40.3b (£312 million, $390 million, 368 million euros) because of the declining value of sterling and new accounting rules, the Financial Times reported Friday after seeing documents yet to be made public.

English football’s top flight is the wealthiest major domestic soccer competition in the world, with much of its income coming from lucrative overseas broadcast deals.

This season alone is set to see the 20 clubs in the Premier League each take a cut from international media rights agreements worth an estimated £3 billion in total.

The league clubs have usually received their share in sterling, with the Premier League using financial instruments known as derivatives to offset the exchange rate risk that comes from the fact that television contracts are also paid in US dollars and euros – a process called hedging.

But UK rules for the reporting of derivatives have changed, with companies now required to value their contracts annually at market prices, instead of waiting until a deal had been completed to make a formal declaration of its worth.

Last season’s edition was the first time these new rules had become applicable to the Premier League.

On July 31, 2016, the last day of the Premier League’s financial year, the pound was worth $1.32 — a 12 percent decline since Britain voted to leave the European Union in a national referendum.

Results for that financial year, which includes 5,000/1 outsiders Leicester City’s shock Premier League title triumph, are due to be published next week.

The Financial Times, citing the Premier League, said the new reporting rules had turned a gain of £638,000 under the old system into a paper loss of £250 million.

According to the FT report, the Premier League said this had done no actual damage to its income or ability to make distributions to its member clubs.

The consequences for the Premier League of ‘Brexit’ which, following the referendum, is due to take place in 2019 after two years of ‘divorce’ talks, may not be limited to currency fluctuations.

Currently, Premier League clubs can sign EU players without having to apply for work permits on their behalf.

Non-EU players must satisfy criteria regarding how many international appearances they have made and how strong their national team is in order to be granted visas, although exemptions can be granted.

A study by The Guardian published in September showed that two thirds of Premier League players from the EU would not meet these criteria.

Fewer stars means reduced international appeal, potentially making rival championships such as Spain’s La Liga or Germany’s Bundesliga more attractive to overseas broadcasters and so reducing the long-term financial strength of the Premier League.